Xiaomi, Vivo, Oppo: Political tensions in India and China hit the smartphone market. But they need each other

Indians love Chinese smartphones, but over the past two months, New Delhi has stepped up scrutiny from top three Chinese firms – Xiaomi, Vivo and Oppo. Together, these companies control more than 60% of the Indian smartphone market, according to research firm Counterpoint.

Xiaomi, the best-selling brand in the country, was the first company heat regulators face. In May, the country’s main financial investigation agency accused Xiaomi’s Indian subsidiary of making illegal money transfers and violating foreign exchange laws.

At the time, Xiaomi India stated that “all of our operations strictly comply with local laws and regulations.” CNN Business did not respond to further requests for comment this week.

Vivo, another major Chinese brand, has been next on the list for the Law Enforcement Authority of India. Earlier this month, the agency accused the company of tax fraud and said it raided 48 Vivo offices in the country and confiscated $60 million from its bank accounts.

A Vivo spokesperson told CNN Business that the company is “working with the authorities to provide them with all the information they need.” He also did not respond to an additional request.

And just last week, Oppo became the latest Chinese smartphone maker to be targeted in India. The company sells the hugely popular Realme and OnePlus brands in the country, and the Indian Fiscal Intelligence Authority has accused the company of evasion about half a billion dollars in taxes.

Oppo did not respond to a request for comment.

Meanwhile, Beijing has criticized the raids on Chinese companies, saying India is damaging its reputation among foreign investors.

In a statement earlier this month, the Chinese Embassy in India said the investigations were disrupting “normal business activity” and undermining “the confidence and willingness of market actors from other countries, including Chinese businesses, to invest and operate in India.”

Why is India cracking down

Chinese tech companies have had a particularly hard time in India over the past two years, with New Delhi cracking down as border tensions between the world’s most populous countries escalated.

In 2020 India has banned more than 200 apps, many of them Chinese, including the hugely popular TikTok video platform.

Chinese suppliers have also come under the heel of Indian regulators because “they have grown very quickly,” said Tarun Pathak, director of research at Counterpoint.

“India is seeking more clarity on how Chinese firms do business here,” he said. “Their balance sheets are being studied now.”

He added that the Indian government is tightening the rules on foreign handset manufacturers because they have realized that “these companies need India more than India needs them.”

While regulatory repression is making it hard to do business in India, experts say it’s unlikely. New Delhi will completely ban Chinese smartphones.

“Chinese firms will stay here,” Pathak said, adding that “there are no other buyers.”

South Korean giant Samsung is the second best-selling smartphone brand in the country and the only non-Chinese firm among top five sellers in India, according to Counterpoint. But it “cannot increase its market share from 20% to 60% overnight,” Pathak said.
Apple (AAPL) for many years has big plans for India, but only captured tiny sliver market because its products are prohibitively expensive for most Indians.

Kiranjit Kaur, deputy director of research at International Data Corporation (IDC), also expects these companies to recover by the time India’s shopping-driven Diwali festival season kicks off in October. She added that these studies are unlikely to be relevant to Indian consumers.

After the clashes at the border, calls for a boycott of Chinese companies, including phone makers, gripped India, Kaur recalls.

Chinese phones are not going anywhere

She added that, despite these protests, the volume of supply of these companies has not changed, and they continued to dominate the market.

India’s love for Chinese smartphones transcends any political tension, mainly because they are considered very valuable in a highly price-sensitive market.

While Indian manufacturers over the past few years have come up with affordable smartphones –including one Developed by Mukesh Ambani, the billionaire head of the sprawling Indian conglomerate Reliance, in partnership with Google, they didn’t make much of a splash among consumers.

“In terms of features, Chinese smartphones offer a lot more and only cost a little more,” Kaur said.

And despite new legal challenges, China cannot afford to abandon the Indian market. The South Asian country of over 1.3 billion people is the second largest smartphone market in the world after China, according to Counterpoint’s Pathak.

“India is very important for all the big players, whether American or Chinese,” he said. He also added that it is the world’s largest “emerging market” as “nearly half of the country is still not connected to smartphones.”

Covid related slowdown in China, which has undermined consumer activity, makes India even more attractive to firms from abroad.

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